Maria Ana Poças Lourenço is a PhD student at the Luxembourg Centre for European Law, University of Luxembourg. Her research focuses on European competition law. (Photo: Maria Ana Pocas Lourenço)

Maria Ana Poças Lourenço is a PhD student at the Luxembourg Centre for European Law, University of Luxembourg. Her research focuses on European competition law. (Photo: Maria Ana Pocas Lourenço)

The EU’s single market is falling behind global competitors like the US and China due to a widening productivity and innovation gap. The Draghi Report calls for a more innovation-driven industrial and competition policy, yet this raises concerns about weakening safeguards on competition and fundamental rights. This is Europe’s balance act: boosting strategic autonomy while protecting its core values.

Despite representing a community of virtually 450 million inhabitants globally, accounting for 5.5% of the world’s population, the EU single market has not been able to keep pace with the main world economic powers, particularly the US and China. This can be attributed to Europe’s competitive disadvantages in terms of productivity, which are especially concerning because they may leave the EU overly dependent on US and China economies. The rapid ageing of Europe’s population, trends towards de-globalisation, environmental challenges and, not least, the current geopolitical context, make this status of economic dependence particularly worrying. 

Against this background, Commissioner Mario Draghi published a report (the ‘Draghi report’) in September 2024, highlighting a growing productivity gap between the EU and US economies, most notably in the digital sector. The report takes the stance that, in order to face current challenges, the EU needs to rethink its industrial strategy, namely by tackling the “innovation gap” in the digital and AI sectors, adopting a joint plan for decarbonisation and competitiveness, and increasing Europe’s security.

In order to fulfil these goals, the report states that the enforcement of competition rules needs to be adapted to become more innovation-friendly. While indicators like price and output have always been central to the application of competition rules, a new approach to competition law should promote a more dynamic understanding of the discipline. This is especially crucial in merger control, for the report states that some past prohibition of mergers between European companies (which would have allowed them to gain scale) has contributed to the “innovation gap”. It is in this context that the report argues for guidelines in merger control that lead competition authorities to assess the impact of the merger on the incentive to innovate.

Recently, it has been reported that the Commission will follow these recommendations and give greater weight to “innovation, investment and the resilience of the internal market” in merger control. In addition, it is expected that the relaxation of merger rules will lead to the creation of “European champions” or EU “superstar companies”. The scaling up of European companies is seen as crucial by the report, taking the view that European companies need to gain scale to compete on a level playing field with US and Chinese ones.

At the other end of the spectrum, this approach has received criticism, namely because there is no direct link between dimension and innovation. Moreover, concerns have been raised that the aims promoted by the report can lead to deregulation and the regression of some European laws aiming to prevent consumer exploitation. In the context of digital markets, in particular, the EU has adopted the Digital Markets Act, Digital Services Act and the AI Act. These regulations, among others, were seen as crucial for tackling the improper influence that big tech companies may have on fundamental rights, democracy, and the economy.

We are at a time when it is crucial to make the EU more competitive and autonomous in key sectors. It is however important to remember that EU law protecting fundamental rights or competition should not be perceived as an obstacle to innovation, but as part of EU constitutional law. The EU needs to level up its competitiveness, but that should not impair European values such as fundamental rights, democracy, and the rule of law.

Maria Ana Poças Lourenço is a doctoral researcher at the Luxembourg Centre for European Law, University of Luxembourg. Her research focuses on EU competition law. Before joining the University, she completed an LLM from the College of Europe, Bruges, and was a researcher at Nova University, Lisbon.